FIRST DIVISION
the real estate taxes paid to CEBU claiming that the land and the warehouse
 
G.R. No. 51593 November 5, 1992
NATIONAL DEVELOPMENT COMPANY, plaintiff-appellee,
vs.
CEBU CITY and AUGUSTO PACIS as Treasurer of Cebu City, defendant-
appellants.
BELLOSILLO, J.:
Is a public land reserved by the President for warehousing purposes in favor
of a government-owned or controlled corporation, 1 as well as the warehouse
subsequently erected thereon, exempt from real property tax?
Petitioner National Development Company (NDC), a government-owned or
controlled corporation (GOCC) existing by virtue of C.A. 182 2 and E.O.
399, 3 is authorized to engage in commercial, industrial, mining, agricultural
and other enterprises necessary or contributory to economic development or
important to public interest. It also operates, in furtherance of its objectives,
subsidiary corporations one of which is the now defucnt National
Warehousing Corporation (NWC). 4
On August 10, 1939, the President issued Proclamation No. 430 5 reserving
Block no. 4, Reclamation Area No. 4, of Cebu City, consisting of 4,599
square meters, for warehousing purposes under the administration of
NWC. 6 Subsequently, in 1940, a warehouse with a floor area of 1,940
square meters more or less, was constructed thereon. 7
On October 4, 1947, E.O. 93 dissolved NWC 8 with NDC taking over its
assets and functions. 9
Commencing 1948, Cebu City (CEBU) assessed and collected from NDC
real estate taxes on the land and the warehouse thereon. 10 By the first
quarter of 1970, a total of P100,316.31 was paid by NDC 11 of which only
P3,895.06 was under protest. 12
On 20 March 1970, NDC wrote the City Assessor demanding full refund of
standing thereon belonged to the Republic and therefore exempt from
taxation. 13 CEBU did not acquiesce in the demand, hence, the present suit
filed 25 October 1972 in the Court of First Instance of Manila.
On 29 May 1973, the Court of First Instance of Manila, Branch XXII,
promulgated a decision 14 the dispositive portion of which reads —
WHEREFORE, judgment is hereby rendered sentencing
the City of Cebu, thru the Treasurer of said City, to refund
to the plaintiff, National Development Company, the real
estate taxes paid by it for the parcel of land covered by
Presidential Proclamation No. 430 of August 10, 1939,
and the warehouse erected thereon from and after
October 25, 1966, with interests thereon at the legal rate
from the date of the filing of the complaint and the costs of
the suit.
The defendants appealed to the Court of Appeals which however certified
the case to Us as one involving pure questions of law, pursuant to Sec. 17,
R.A. 296.
In this appeal, CEBU assigns five (5) errors 15 imputed to the trial court which
may be synopsized into whether NDC is exempted from payment of the real
estate taxes on the land reserved by the President for warehousing
purposes as well as the warehouse constructed thereon, and in the
affirmative, whether NDC may recover in refund unprotested real estate
taxes it paid from 1948 to 1970.
On the first question, CEBU insists on taxability of the subject properties,
claiming that no law grants NDC exemption from real estate taxes, and that
NDC, as recipient of the land reserved by the President pursuant to Sec. 83
of the Public Land Act, 16 is liable for payment or ordinary (real estate) taxes
under Sec. 115 therefore. CEBU contends that the properties have ceased
to be tax exempt under the Assessment Law. 17 when the government
disposed of them in favor of NDC, and even assuming that title to the land
remains with the government (ownership being the basis for real estate
taxability under the Assessment Law), the Supreme Court rulings establish
increasing rather than "ownership" as basis for real estate tax liability.
On the other hand, NDC maintains the Sec. 3 of the Assessment Law, which
exempts properties owned by the Republic from real estate tax, includes
subject properties in the exemption. It invokes the ruling in Board of
Assessment Appeals vs. CTA & NWSA  18 which held that properties of
NWSA, a GOCC, were exempt from real estate tax because Sec. 3 of the
Assessment Law applied to all government properties whether held in
governmental or proprietary capacity. NDC rejects the applicability of Sec.
115 of the Public Land Act to the subject land, claiming that provision
contemplates dispositions of public land with eventual transfer of title. In
addition, NDC believes that it is neither a grantee of a public land nor an
applicant within the purview of the same provision.
As already adverted to, one of the principal issues before Us is the
interpretation of a provision of the Assessment Law, the precursor of the
then Real Property Tax Code and the Local Government Code, where
"ownership" of the property and not "use" is the test of tax liability. 19
Section, 3 par. (a), of the Assessment Law, on which NDC claims real estate
tax exemption, provides —
Section 3. Property exempt from tax. — The exemptions
shall be as follows: (a) Property owned by the United
States of America, the Commonwealth of the Philippines,
any province, city, municipality at municipal district . . .
The same opinion of NDC was passed upon in National Development
Co.  v. Province of Nueva Ecija  20 where We held that its properties were not
comprehended in Sec. 3, par (a), of the Assessment Law. In part, We stated:
1. Commonwealth Act No. 182 which created NDC
contains no provision exempting it from the payment of
real estate tax on properties it may acquire . . . There is
justification in the contention of plaintiff-appellee that . . .
[I]t is undeniable that to any municipality the principal
source of revenue with which it would defray its operation
will came from real property taxes. If the National
Development Company would be exempt from paying real
property taxes over these properties, the town of
Gabaldon will bee deprived of much needed revenues with
which it will maintain itself and finance the compelling
needs of its inhabitants (p. 6, Brief of Plaintiff-Appellee).
2. Defendant-appellant NDC does not come under
classification of municipal or public corporation in the
sense that it may sue and be sued in the same manner as
any other private corporations, and in this sense, it is an
entity different from the government, defendant
corporation may be sued without its consent, and is
subject to taxation. In the case NDC vs. Jose Yulo Tobias,
7 SCRA 692, it was held that . . . plaintiff is neither the
Government of the Republic nor a branch or subdivision
thereof, but a government owned and controlled
corporation which cannot be said to exercise a sovereign
function (Association Cooperativa de Credito Agricola de
Miagao vs. Monteclaro, 74 Phil. 281). it is a business
corporation, and as such, its causes of action are subject
to the statute of limitations. . . . That plaintiff herein does
not exercise sovereign powers — and, hence, cannot
invoke the exemptions thereof –– but is an agency for the
performance of purely corporate, proprietary or business
functions, is apparent from its Organic Act
(Commonwealth Act 182, as amended by Commonwealth
Act 311) pursuant to Section 3 of which it "shall be subject
to the provisions of the Corporation Law insofar as they
are not inconsistent" with the provisions of said
Commonwealth Act, "and shall have the general powers
mentioned in said" Corporation Law, and, hence, "may
engage in commercial, industrial, mining, agricultural, and
other enterprises which may be necessary or contributory
to the economic development of the country, or important
in the public interest," as well as "acquire, hold, mortgage
and alienate personal and real property in the Philippines
or elsewhere; . . . make contracts of any kind and
description", and "perform any and all acts which a
corporation or natural persons is authorized to perform
under the laws now existing or which may be enacted
hereafter."
We find no compelling reason why the foregoing ruling, although referring to
lands which would eventually be transferred to private individuals, should not
apply equally to this case.
NDC cites Board of Assessment Appeals, Province of Laguna v.  Court of
Tax Appeal and National Waterworks and Sewerage Authority (NWSA).  In
that case, We held that properties of NWSA, a GOCC, were exempt from
real estate tax because Sec. 3, par (c), of R.A. 470 did not distinguish
between those possessed by the government in
sovereign/governmental/political capacity and those in
private/proprietary/patrimonial character.
The conflict between NDC v.  Nueva Ecija, supra,  and BAA v.  CTA and
NWSA, supra, is more superficial than real. The NDC  decision speaks of
properties owned by NDC, while the BAA  ruling concerns properties
belonging to the Republic. The latter case appears to be exceptional
because the parties therein stipulated —
1. That the petitioner National Waterworks and Sewerage
Authority (NAWASA) is a public corporation created by
virtue of Republic Act. No. 1383, and that it is owned by
the Government of the Philippines as well as all property
comprising waterworks and sewerage systems placed
under it (Emphasis supplied).
There, the Court observed: "It is conceded, in the stipulation of facts, that the
property involved in this case "is owned by the Government of the
Philippines." Hence, it belongs to the Republic of the Philippines and falls
squarely within letter of the above provision."
In the case at bar, no similar statement appears in the stipulation of facts,
hence, ownership of subject properties should first be established. For, while
it may be stated that the Republic owns NDC, it does not necessary follow
that properties owned by NDC, are also owned by Republic — in the same
way that stockholders are not ipso facto owners of the properties of their
corporation.
The Republic, like any individual, may form a corporation with personality
and existence distinct from its own. The separate personality allows a GOCC
to hold and possess properties in its own name and, thus, permit greater
independence and flexibility in its operations. It may, therefore, be stated
that tax exemption of property owned by the Republic of the Philippines
"refers to properties owned by the Government and by its agencies which do
not have separate and distinct personalities (unincorporated entities). We
find the separate opinion of Justice Bautista-Angelo in Gonzales
v.  Hechanova, et al., 21 appropriate and enlightening —
. . . The Government of the Republic of the Philippines
under the Revised Administrative Code refers to that entity
through which the functions of government are exercised,
including the various arms through which political authority
is made effective whether they be provincial, municipal or
other form of local government, whereas a government
instrumentality refers to corporations owned or controlled
by the government to promote certain aspects of the
economic life of our people. A government agency
therefore, must necessarily after refer to the government
itself to the Republic, as distinguished from any
government instrumentality which has a personality
distinct and separate from it (Section 2).
The foregoing discussion does not mean that because NDC, like most
GOCC's engages in commercial enterprises all properties of the government
and its unincorporated agencies possessed in propriety character are
taxable. Similarly, in the case at bar, NDC proceeded on the premise that
the BAA ruling declared all properties owed by GOCC's as properties in the
name of the Republic, hence, exempt under Sec. 3 of the Assessment
Law. 22
To come within the ambit of the exemption provided in Art. 3, par. (a), of the
Assessment Law, it is important to establish that the property is owned by
the government or its unincorporated agency, and once government
ownership is determined, the nature of the use of the property, whether for
proprietary or sovereign purposes, becomes immaterial. What appears to
have been ceded to NWC (later transferred to NDC), in the case before Us,
is merely the administration of the property while the government retains
ownership of what has been declared reserved for warehousing purposes
under Proclamation No. 430.
Incidentally, the parties never raised the issued the issue of ownership from
the court a quo to this Court.
A reserved land is defined as a "[p]ublic land that has been withheld or kept
back from sale or disposition." 23 The land remains "absolute property of the
government." 24 The government "does not part with its title by reserving
them (lands), but simply gives notice to all the world that it desires them for a
certain purpose." 25 Absolute disposition of land is not implied from
reservation; 26 it merely means "a withdrawal of a specified portion of the
public domain from disposal under the land laws and the appropriation
thereof, for the time being, to some particular use or purpose of the general
government." 27 As its title remains with the Republic, the reserved land is
clearly recovered by the tax exemption provision.
CEBU nevertheless contends that the reservation of the property in favor of
NWC or NDC is a form of disposition of public land which, subjects the
recipient (NDC ) to real estate taxation under Sec. 115 of the Public Land
Act. as amended by R.A. 436, 28 which estate:
 Sec 115. All lands granted by virtue of this Act, including
homesteads upon which final proof has not been made or
approved shall, even though and while the title remains in
the State, be subject to the ordinary taxes, which shall be
paid by the grantee or the applicant, beginning with the
year next following the one in which the homestead
application has been filed, or the concession has been
approved, or the contract has been signed, as the case
may be, on the basis of the value fixed in such filing,
approval or signing of the application, concession or
contract.
The essential question then is whether lands reserved pursuant to Sec. 83
are comprehended in Sec. 115 and, therefore, taxable.
Section 115 of the Public Land Act should be treated as an exception to Art.
3, par. (a), of the Assessment Law. While ordinary public lands are tax
exempt because title thereto belongs to the Republic, Sec. 115 subjects
them to real estate tax even before ownership thereto is transferred in the
name of the beneficiaries. Sec. 115 comprehends three (3) modes of
disposition of Lands under the Public Land Act, to wit: homestead,
concession, and contract.
Liability to real property taxes under Sec. 115 is predicated on (a)  filing of
homestead application, (b) approval of concession and, (c) signing of
contract. Significantly, without these words, the date of the accrual of the
real estate tax would be indeterminate. Since NDC is not a homesteader and
no "contract" (bilateral agreement) was signed, it would appear, then, that
reservation under Sec. 83, being a unilateral act of the President, falls under
"concession".
"Concession" as a technical term under the Public Land Act is synonymous
with "alienation" and "disposition", and is defined in Sec. 10 as "any of the
methods authorized by this Act for the acquisition, lease, use, or benefit of
the lands of the public domain other than timber or mineral lands." Logically,
where Sec. 115 contemplates authorized methods for acquisition, lease,
use, or benefit under the Act, the taxability of the land would depend on
whether reservation under Sec. 83 is one such method of acquisition, etc.
Tersely put, is reservation synonymous with alienation? Or, are the two
terms antithetical and mutually exclusive? Indeed, reservation connotes
retention, while concession (alienation) signifies cession.
Section 8 and 88 of the Public Land Act provide that reserved lands are
excluded from that may be subject of disposition, to wit –—
Sec. 8. Only those lands shall be declared open to
disposition or concession which have been officially
delimited and classified and, when practicable, surveyed,
and which have not been reserved  for public or quasi-
public uses, nor appropriated by the Government, nor in
any manner become private property , nor those on which
a private right authorized and recognized by this Act or
any valid law may be claimed, or which, having been
reserved or appropriated, have ceased to be so.
Sec. 88. The tract or tracts of land reserved under the
provisions of section eighty-three shall be non-alienable
and shall not be subject to occupation, entry, sale, lease,
or other disposition until again declared alienable under
the provisions of this Act or by proclamation of the
President (Emphasis supplied)
As We view it, the effect of reservation under Sec. 83 is to segregate a piece
of public land and transform it into non-alienable or non-disposable under
the Public Land Act. Section 115, on the other hand, applies to disposable
public lands. Clearly, therefore, Sec. 115 does not apply to lands reserved
under Sec. 83. Consequently, the subject reserved public land remains tax
exempt.
However, as regards the warehouse constructed on a public reservation, a
different rule should apply because "[t]he exemption of public property from
taxation does not extend to improvements on the public lands made by pre-
emptioners, homesteaders and other claimants, or occupants, at their own
expense, and these are taxable by the state . . ." 29 Consequently, the
warehouse constructed on the reserved land by NWC (now under
administration by NDC), indeed, should properly be assessed real estate tax
as such improvement does not appear to belong to the Republic.
Since the reservation is exempt from realty tax, the erroneous tax payments
collected by CEBU should be refunded to NDC. This is in consonance with
Sec. 40, par. (a) of the former Real Property Tax Code which exempted from
taxation real property owned by the Republic of the Philippines or any of its
political subdivisions, as well as any GOCC so exempt by its charter. 30
As regards the requirement of paying under protest before judicial recourse,
CEBU argues that in any case NDC is not entitled to refund because Sec. 75
of R.A. 3857, the Revised Charter of the City of Cebu, 31 requires
payment under protest  before resorting to judicial action for tax refund; that it
could not have acted on the first demand letter of NDC of 20 May 1970
because it was sent to the City Assessor and not to the City Treasurer; that,
consequently, there having been no appropriate prior demand, resort to
judicial remedy is premature; and, that even on the premise that there was
proper demand, NDC has yet to exhaust administrative remedies by way of
appeal to the Department of Finance and/or Auditor General before taking
judicial action.
NDC does not agree. It disputes the applicability of the payment-under-
protest requirement is Sec. 75 of the Revised Cebu City Charter because
the issue is not the validity of tax assessment but recovery of erroneous
payments under Arts. 2154 and 2155 of the Civil Code. 32 It cites the case
of East Asiatic Co., Ltd. v.  City of Davao  33 which held that where the tax is
unauthorized, "it is not a tax assessed under the charter of the appellant City
of Davao and for that reason no protest is necessary for a claim or demand
for its refund." In Ramie Textiles, Inc.  vs. Mathay, Sr.,  34  We held —
. . . Protest is not a requirement in order that a taxpayer
who paid under a mistaken belief that it is required by law,
may claim for a refund. Section 54 35 of Commonwealth
Act No. 470 does not apply to petitioner which could
conceivably not have been expected to protest a payment
it honestly believed to be due. The same refers only to the
case where the taxpayer, despite his knowledge of the
erroneous or illegal assessment, still pays and fails to
make the proper protest, for in such case, he should
manifest an unwillingness to pay, and failing so, the
taxpayer is deemed to have waved his right to claim a
refund.
In the case at bar, petitioner, therefore, cannot be said to
have waived his right. He had no knowledge of the fact
that it was exempted from payment of the realty tax under
Commonwealth Act No. 470. Payment was made through
error or mistake, in the honest belief that petitioner was
liable, and therefore could not have been made under
protest, but with complete voluntariness. In any case, a
taxpayer should not be held to suffer loss by his good
intention to comply with what he believes is his legal
obligation, where such obligation does not really exist . . .
The fact that petitioner paid thru error or mistake, and the
government accepted the payment, gave rise to the
application of the principle of solutio indebiti  under Article
2154 of the New Civil Code, which provides that "if
something is received when there is no right to demand it,
and it was unduly delivered through mistake, the obligation
to return it arises." There is, therefore, created a tie or
juridical relation in the nature of solutio indebiti,  expressly
classified as quasi-contract under Section 2, Chapter I of
Title XVII of the New Civil code.
The quasi-contract of solutio indebiti is one of the concrete
manifestations of the ancient principle that no one shall
enrich himself unjustly at the expense of another . . .
Hence, it would seem unedifying for the government, that
knowing it has no right at all to collect or to receive money
for alleged taxes paid by mistake, it would be reluctant to
return the same . . . Petitioner is not unsatisfied in the
assessment of its property. Assessment having been
made, it paid the real estate taxes without knowing that it
is exempt.
As regards the claim for refund of tax payments spanning more than twenty
(20) years, We also said in Ramie Textiles that —
Solutio indebiti is a quasi-contract, and the instant case
being in the nature of solutio indebiti, the claim for refund
must be commenced within six (6) years from date of
payment pursuant to Article 1145 (2) of the New Civil
Code 36 . . .
We sustain the appellate court to the extent that its decision covers
improperly collected taxes on the reserved land under Proclamation No. 430,
thus —
The defense of prescription invoked by the defendant
which counsel for the plaintiff, however, did not answer in
its memorandum, is partly well-taken. Actions for refund of
taxes illegally collected must be commenced within six (6)
years from the date of collection. . . . .
The stipulation of facts and the pleadings filed by the
parties do not contain data specifying when and how much
 were paid by the year, of the taxes sought to be refunded.
Accordingly, the Court has no other alternative but to order
the refund of an undetermined amount based, however,
on the date of payment counted six (6) years backward
from October 25, 1972, when the complaint in this case
was filed. 37

As regards exhaustion of administrative remedies, We agree with the trial

court that the case constitutes an exception to the rule, as it involves purely
question of law. 38 Specifically, on the requirement of appeal to the Secretary
of Finance, We further held in the same Ramie Textiles that "[E]qually not
applicable is Section 17 of Commonwealth Act No. 470 39 cited by
respondent in relation to the right of a, property owner to contest the validity
of assessment . . ."

Respondent CEBU likewise invites Our attention to the availability of appeal

to the Government Auditing Office although no authority is cited to Us. We
do not find any either to sustain the procedure.

WHEREFORE, finding that National Development Company (NDC) is

exempt from real estate tax on the reserved land but liable for the
warehouse erected thereon, the decision appealed from is
accordingly MODIFIED. Consequently, let this case be remanded to the
court of origin, now the Regional Trial Court of Manila, to determine the
proper liability of NDC, particularly on its warehouse, and effect the
corresponding refund, payment or set-off, as the case may be, conformably
with this decision. No costs.

SO ORDERED.

Cruz, Padilla and Griño-Aquino, JJ., concur.

Medialdea, J., is on leave.